No transition period for tax-free trade

  • 1999-08-19
  • Brooke Donald
TALLINN - The Ministry of Foreign Affairs announced this week it would not seek a transition period with regard to the abolition of tax-free trade at the next European Union accession talks.

"The EU itself had difficulties with their negotiations on this and the union was unable to reach a consensus. It would be naive to think that an applicant country could ask for a transition period," said Taavi Toom, press secretary at the Ministry of Foreign Affairs.

The abolition of tax-free trade would come into effect on Estonia's projected date of accession into the union, Jan. 1, 2003.

The announcement angered shipping companies who say they rely on the sale of tax-free goods for a big chunk of their revenue.

"Sixty or 70 percent of our income comes from tax-free shopping," said Malle Aleksius, public relations officer for Hansatee, Esto-nia's leading passenger-shipping company. "I think this could cut the number of passengers in half," she added.

Aleksius said abolishing tax-free trade would force Hansatee to raise its ticket prices to compensate for the loss in revenue from the sale of goods. She said the prices would probably be raised to two or three times what they are now, up to 500 kroons ($34.27), which she compared to the price of an airline ticket.

Toom said it was important that "the impact of this not be overestimated," despite what shipping companies say. He said this is not a macroeconomic issue and that is one reason why the government will not ask for postponement of the abolition.

"On other taxes, yes, we have said we need the transition period. But, we feel for this, it isn't such a big issue. There have been no concrete numbers that I have seen that suggest otherwise," he said.

But, Toivo Jurgenson, minister of transport and communications, said the preservation of tax-free shopping would benefit Estonia and the shipping companies, BNS reported. The minister said without a transition period there might be setbacks in tourism and a decrease in investments to develop Esto-nia's infrastructure.

Jurgenson was unavailable for further comment.

Toom dismissed the idea that a drop in tourism would result because of the abolition of tax-free trade.

"Finns come to Estonia not only because of tax-free shopping on ships. There are other things here to see. And, in fact, in stores in Estonia there are probably cheaper prices than on the ships," he said.

Aleksius doesn't dispute that prices in Estonia are probably cheaper than on the ships, but, she said, from what Hansatee has seen, many Finns do choose Estonia as a destination because of the on-board shopping. And, after accession overall consumer prices in Estonia may go up, she said.

"Fifty percent of our clients have traveled five or 10 times to Tallinn. They have already seen the city. We think many of them are coming for the tax-free goods," she said. "This kind of passenger will never revisit Estonia [if there is no transition period]."

Aleksius said many travelers may choose Stockholm instead of Tallinn in the future because tax-free goods are still available on those passages and with the prospect of Hansatee increasing its ticket prices, the price of the voyage may equal that of a trip from Helsinki to Stockholm.

Silja Line and Viking Line, two large Scandinavian passenger shipping companies and Hansatee's competitors, continue tax-free sales on their routes because they pass through the port of Mariehamn on Aland, where EU tax laws do not apply.

Toom commented that one cannot compare the situation in Estonia with that of Aland. He said the special status of autonomy enjoyed by Aland is historical and Estonia cannot claim that argument.

"We don't want the government to say we will definitely have [the transition period]. We just want them to ask. We think that it is stupid not to ask," said Aleksius. "We don't know what the EU will say, but we should at least ask."

The abolition of intra-EU duty- and tax-free trade went into effect July 1 of this year.